Call for stability on R&D tax credit

Revenue saved from tightening debt deductions for multinationals won’t be enough to fund a company tax cut, even as business groups rally against any slashes to tax breaks.

Further limits to the debt deductions are expected to bring savings of more than $300 million a year, a Treasury estimate that business figures consider is grossly understated.

But speaking with the Weekend AFR, Chris Jordan, the head of the federal government’s business tax working group that must find ways to fund the cut demanded by the Prime Minister, said that he did not think simply limiting debt deductions would raise enough.

“I don’t think alone it will sponge enough to make a significant tax cut," he said, despite admitting that Treasury’s costings needed more work. That means that other tax breaks would have to go as well. Others on the table are just as contested by business: cutting research and development (R&D) concessions, stripping deductions for mining exploration and removing fast depreciation for oil and gas pipelines.

Australian Petroleum Production & Exploration Association chief executive David Byers said that in recent years the resources sector had been “confronted with the imposition of a range of new resources-specific taxes, without the abolition of any of the existing ones".

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“Continually placing higher imposts on efficient industries will invariably reduce their capacity to provide economic growth and prosperity," he said.

Tax experts are aghast that the new R&D tax credit is being considered for cuts even before the end of its first year of operation on June 30. The credit had a torturous passage through Parliament, with former industry minister
Kim Carr
making substantial changes to the legislation at least three times.

PwC tax partner Sandra Mason said it was premature to change the scheme before companies had filed their first tax return or there was any evidence of its effectiveness.

“Stability is the key here for a new program in its early days," Ms Mason said. “If any change were made it could lead to confusion for the business community."

Deloitte tax partner Jason Crawford said companies were still gearing up for the incentive.

“This puts them in a bit of a no man’s land for this argument to keep coming up from time to time."

In a recent interview with the AFR, Climate Change Minister
Greg Combet
said he was “very committed" to the credit in the face of fears of cuts, promising a major statement before year-end to spell out his approach.

The working group is due to release a consultation paper in coming weeks, setting out the process leading to its year-end report on reducing the 30 per cent company tax rate. Unlike in its interim rounds of consultation on small business measures, Mr Jordan said it would focus on savings options up-front. He has called on business to engage in “hard-nosed pragmatic analysis" of the possible trade-offs to obtain a tax cut.